EU Squeezes Iran With New Oil Sanctions

Catherine Ashton, the European Union foreign policy chief, speaks in Brussels on Monday following a meeting of EU foreign ministers. The EU has agreed to an embargo on buying oil from Iran in the latest sanction against that country for its nuclear program.

Virginia Mayo
/ AP

Listen

Listening...

/

Originally published on January 24, 2012 12:01 am

The battle over Iran's nuclear program escalated Monday as the European Union announced an embargo on importing oil from Iran.

For years, Europe has been reluctant to join the United States in imposing tough sanctions on Iran. The United States years ago stopped buying Iranian oil, while European nations including France, Spain, Italy and Greece kept up their purchases. European countries right now buy about 600,000 barrels of oil per day from Iran.

But the European position began to change with last November's report from the International Atomic Energy Agency, highlighting evidence that Iran might be moving toward a nuclear weapons capability.

The EU move, which was taken in Brussels, could hurt Iran because its economy is already struggling, and the country depends on oil exports for about 80 percent of its foreign revenue.

Iranian leaders reacted sharply to the new embargo, with another threat to close the Strait of Hormuz, where some 20 percent of the world's oil passes on its way to world markets.

In Brussels, Catherine Ashton, the European Union's foreign policy chief, announced that all 27 member states have decided the time has come to increase the pressure on Iran.

"We've adopted tough new sanctions against Iran because of the concern we have over their nuclear program," she said. "We've added additional restrictive measures in the energy sector, including a phased embargo on Iranian crude oil imports to the EU."

No New Contracts With Iran

New contracts to buy Iranian oil are barred, but countries with existing contracts can honor them for six more months.

That coincides with a U.S. sanctions timeline. Within six months, the Obama administration has to decide whether to impose sanctions on countries that buy Iran's oil through its central bank.

A senior Treasury Department official today said he expects a significant drop in Iranian oil exports as a result of the U.S. and EU sanctions. That could explain a $1 jump in the oil price Monday. Traders could be anticipating that Iranian oil will be coming off the market, reducing the supply to meet global demand.

How much is not clear. Jamie Webster, a Middle East oil analyst at PFC Energy, says the U.S. and EU sanctions could simply lead to a shift in Iran's oil customers. "Iran will pull back from delivering to the EU and will start delivering more into Eastern markets," he says.

For example, China, with its thirst for energy, may move to buy some of the Iranian oil that would otherwise go to Europe. But even so, Webster says, a result of the U.S. and EU sanctions may be that Iran is not able to export as much oil as it does today.

"Six months from now it would not surprise me if there was some portion of Iranian barrels that they are having difficulty marketing," he said.

Iran depends on oil for its income, and a drop in its oil revenue would do major damage to the already weak Iranian economy.

It all depends on what other countries do. At the EU, Catherine Ashton said she's hopeful the world will show solidarity in putting pressure on Iran to back off any thought of developing nuclear weapons.

"We've talked with a lot of countries about the particular role they could play," she said. "Some have decided to follow us on sanctions. Others have found other ways of putting on pressure."

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

MELISSA BLOCK, HOST:

You are listening to ALL THINGS CONSIDERED from NPR News.

An escalation today in the battle with Iran over its nuclear program. The European Union announced an embargo on Iranian oil. The measure could hurt. Iran depends on oil exports for about 80 percent of its foreign revenue, and about a fifth of that revenue comes from Europe. Iranian leaders reacted sharply to the embargo.

As NPR's Tom Gjelten reports, they threatened once again to close the Strait of Hormuz.

TOM GJELTEN, BYLINE: For years, Europe has been reluctant to join the United States in imposing tough sanctions on Iran. The United States years ago stopped buying Iranian oil, but France, Spain, Italy and Greece kept up their purchases and in significant quantities. What changed was a report last November from the International Atomic Energy Agency highlighting evidence that Iran might be moving toward a nuclear weapons capability. And today, Catherine Ashton, the European Union's foreign policy chief, announced that all 27 member states have decided the time has come to increase the pressure on Iran.

CATHERINE ASHTON: We've adopted tough new sanctions against Iran because of the concern we have over their nuclear program. We've added additional restrictive measures in the energy sector, including a phased embargo on Iranian crude oil imports to the E.U.

GJELTEN: New contracts to buy Iranian oil are barred, but countries with existing contracts can honor them for another six months. That coincides with a U.S. sanctions time line. Within six months, the Obama administration has to decide whether to impose sanctions on countries that buy Iran's oil through its central bank. A senior Treasury Department official today said he expects, in his words, a significant drop in Iranian oil exports as a result of the U.S. and E.U. sanctions.

That could explain a $1 jump in the oil price today. Traders could be anticipating that Iranian oil will be coming off the market, leaving less supply to meet global demand. But how much of a drop is not clear. Jamie Webster, a Middle East oil analyst at PFC Energy, says the U.S. and E.U. sanctions could simply lead to a shift in Iran's oil customers.

JAMIE WEBSTER: Iran will pull back from delivering to the E.U. and will start delivering more into Eastern markets.

GJELTEN: For example, China, with its abundant energy needs, may move to buy some of the Iranian oil that would otherwise go to Europe. But even so, Webster says, a result of the U.S. and E.U. sanctions may be that Iran is not able to export as much oil as it does today.

WEBSTER: Six months from now, it would not surprise me if there was some portion of Iranian barrels that they were having difficulty marketing, so, you know, 100,000 barrels a day, 200,000 barrels a day. I don't expect it to be a huge amount. I don't expect this to drop things down to, you know, half of their production.

GJELTEN: Iran depends on oil for its income, and a drop in its oil revenue would do major damage to the already weak Iranian economy. It all depends on what other countries do. At the E.U., Catherine Ashton today said she's hopeful the world will show solidarity in putting pressure on Iran to back off any thought of developing nuclear weapons.

ASHTON: We've talked with a lot of countries about the particular role they can play. Some have decided to follow us on sanctions. Others have found other ways of putting on the pressure.

GJELTEN: Iran, of course, could feel the pressure but still refuse to negotiate over its nuclear program. Tom Gjelten, NPR News, Washington. Transcript provided by NPR, Copyright NPR.